Sydney still remains dominant in aviation and international tourism and so itâ€™s not surprising other cities are increasing share at its expense. Melbourne likewise continues to be dominant in containers and international students but also lost share.

Professors Searle and Oâ€™Connor note that Sydney increased employment in some higher order services at the expense of Melbourne, notably in newspaper publishing, TV broadcasting and advertising services. However Melbourne performed better in telecommunications, market research services, management consulting, computer systems design and recruitment services.

Melbourne lost more ground in manufacturing (and this will be reinforced by the headline losses this year). Yet the great bulk of jobs in any city are much the same because they service the local population; Melbourneâ€™s key advantage over the period was its higher net population growth.

The authors put a lot of weight on housing costs to explain the relative performance of the two cities, pointing out that an outer suburban (greenfield) house in Melbourne costs two thirds of one in Sydney.

Housing construction didnâ€™t keep pace with population growth in either city but Melbourne did much better:

Victoria experienced a supply deficiency of 17,600 dwellings in relation to underlying demand between June 2001 and June 2010. But NSWâ€™s deficiency over the same period was 73,700, indicating that housing construction in Sydney fell significantly short of population growth.

As Iâ€™ve explained before, a 2010 study ofÂ dwelling costsÂ by the National Housing Supply Council found it cost $561,000 to deliver a typical three bedroom house and land package on Sydneyâ€™s fringe. Thatâ€™s considerably more than the $375,000 it cost in Melbourne.

The difference is mainly down to Sydneyâ€™s constrained geography and high developer charges. The cost of raw land in Sydney at the time was $152,000 per lot on average, compared to $50,000 in Melbourne. Further, developer contributions were almost $60,000 per lot lower in Melbourne.

Infill housing is more expensive in Sydney too. The Council’s study found a typical two bedroom apartment within 2-10 km of the CBD cost $554,000. In Melbourne, a comparable apartment cost $490,000. (1)

Although they donâ€™t explore them, the authors speculate that Sydneyâ€™s complex planning rules, “relatively worse transport system”, and poorer investment attraction programs might also have contributed to its lesser performance over the period.

They also suggest Melbourneâ€™s â€ślaneways and tramsâ€ť are part of the explanation:

More generally, it seems that Melbourneâ€™s underlying geography is now starting to be an advantage in competition with Sydney. Itâ€™s less expensive and more easily developed urban fringe reduces land costs for housing, logistics and other uses. Melbourne airportâ€™s location does not necessitate a curfew, unlike Sydneyâ€™s. The European quality of the built form of Melbourneâ€™s central areas, such as its laneways and trams, has also captured the zeitgeist of Generation Y and helped make it Australiaâ€™s preferred destination for aspirational young professionals. These are all significant features that will keep Melbourne very competitive with Sydney.

Although Sydney is clearly Australia’s global city, Melbourne also has formidable strengths. It regularly ranks in lists of top financial centres like Richard Florida’s Global Economic Power IndexÂ (although behind Sydney). It benefits enormously in terms of legacy institutions from having once been the country’s national capital (1901-1927) and at one time its major commercial centre.

The fortunes of cities are primarily shaped by factors like geography, history and wider economic and structural changes. But they’re also shaped to an extent by factors within their control.

Sydney suffered dysfunctional (state) government over much of the period considered here and depressed conditions in its global business sectors. All levels of government have also struggled with major infrastructure issues like a second Sydney airport. But Sydney can, and very likely will, do better.

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Sydney is the only city in Australia where the cost to provide an infill housing unit is the same on average as providing a greenfield unit; in the other capitals the latter is much cheaper. Itâ€™s likely this explains in part Sydneyâ€™s higher density.

The reason is that Sydney (and NSW) were managed by an ALP that was more focused on factional fights, who got what spoils of the Ministry and criminal dealings (see Armstrong, Obeid et al) than on running a successful, growing state.

It wasn’t helped that the Planning Department captured Frank Sartor with it’s no new suburban housing development mantra. instead of new housing developments, Sydney was told it would have to learn to love inner city medium and high density housing along rail lines.

There’s a call for that yes, but there’s also a call for traditional housing developments, but the Government throttled that new suburban housing development pace right back, artificially driving up house prices through scarcity and pocketing the increase through stamp duty (don’t forget for a while there they tried to tax both the sale and the purchaser. Good one there).

O’Farrell’s government has made mistakes, but they are trying to get things moving again, some of their ideas will fail, others succeed,but at least they’re trying.

The chart at the top of the article showing median prices for housing explains it all. Immigrants are more likely to choose Melbourne because they can buy a brand new house on the fringes of Melbourne for approx $200k less than in Sydney. Also the fringe suburbs of Melbourne are closer to the CBD than those in Sydney, where more affordable new greenfield housing is located near Campbelltown or Penrith which are about 50 km from the CBD.
Also higher prices are encouraging Sydney people to move out because they can buy a better house in another city, not to mention reduce the time spent commuting. Sydney retirees can significantly boost their retirement savings by selling in Sydney and moving to another city or up the coast.

Honestly, nobody likes having to pay expensively for basic amenities. If housing is going to cost a bomb, then obviously an area is going to have difficulty “growing”. Everybody wants a place to put down their head, have some items in storage, and a property to their name. Perhaps people are heading to Melbourne more because there’s precisely a cheaper opportunity to do so there than in comparison to in Sydney.